Nidhi Companies are basically Non-Banking Financial Companies (NBFC) that are engaged in the business of accepting deposits and providing loans to their members. It is a company formed with the exclusive object of cultivating the habit of thrift, savings, and functioning for the mutual benefit of members by receiving deposits only from individuals enrolled as members and by lending only to individuals, also enrolled as members, it restricts dealing with individuals who are non-members.
The primary object of Nidhi Companies is to carry on the business of accepting deposits and lending money to member-borrowers against jewels, immovable property, fixed deposit receipts, National Savings Certificates, other Government Securities and insurance policies etc. Nidhi Companies are not allowed to engage themselves in the business of Chit Fund, hire purchase, insurance, or in any other business including investments in shares or debentures.
Nidhi companies are incorporated in the nature of a Public Limited company and hence, they have to comply with two sets of norms, one of Public limited company as per Companies Act, 2013 and another is the Nidhi Rules, 2014. Nidhi Company is a class of Non-Banking Financial Company (NBFC) and the Reserve Bank of India(RBI) has powers to issue directions and make rules for deposit-related activities. But, as Nidhi Companies deal with shareholder-members only, RBI has exempted them from the provisions of the RBI Act and other directions applicable to NBFCs. Nidhi Company is also known as Mutual Benefit Society.
Features of Nidhi Company Registration
Dealings with members only
- Nidhi Company is allowed to carry on business (lending and borrowing) only with its members and with nobody else. So, before accepting deposits or lending loan to any person, it shall induct such person as a member/shareholder of Nidhi Company
- A Nidhi Company shall not induct a body corporate or trust or a minor person as a member.
- There shall be a minimum of seven (7) members at the time of incorporation, there is no maximum limit on the number of members. After 1 year of incorporation, Nidhi shall ensure that its membership is not reduced to less than 200 members at any time.
- The Directors of Nidhi Company shall also be its members.
Name and Object of Nidhi Company
- In order to differentiate Nidhi Companies from other Public Limited Companies, it would require to add the words “Nidhi Limited” as a suffix in its name.
- The object of the company shall be cultivating the habit of thrift and savings amongst its members, receiving deposits from and lending to its members only for their mutual benefits.
- Nidhi Company may accept deposits from members in the form of Savings Deposits, Fixed deposits (FD) and Recurring deposits (RD)
- Savings Deposits Account: The interest on savings account shall not exceed 2% above the rate of interest payable to savings bank account by nationalized banks and the maximum balance in any savings deposit account at any given time qualifying for interest shall not exceed Rs. 1,00,000/-
- Fixed Deposits: Fixed deposits shall be accepted for a minimum period of 6 months and a maximum period of 60 months.
- Recurring Deposits: Recurring deposits shall be accepted for a minimum period of 12 months and a maximum period of 60 months. (In case of recurring deposits relating to mortgage loans, the maximum period of recurring deposits shall correspond to the repayment period of such loans granted by Nidhi)
- The interest for fixed and recurring deposits shall be at a rate not exceeding the maximum rate of interest prescribed by RBI which the NBFC can pay on their public deposits.
- Nidhi Company shall only give secured loans to its members against gold, silver, jewellery, immovable property, fixed deposit receipts, National Savings Certificates, Government securities, and insurance policies.
- Loan against gold, silver, and jewellery: The Repayment period of such loan shall not exceed one year.
- Loan against Immovable Property: The loan shall not exceed 50% of the value of the property offered as security and the period of repayment of such loan shall not exceed 7 years.
- Loan against fixed deposit receipts, National Savings Certificates, Government Securities, and insurance policies: These securities shall be pledged with Nidhi Company till the tenure of loan or one year (whichever is earlier). However, in the case of a loan against fixed deposits, the period of loan shall not exceed the unexpired period of the fixed deposits.
- The rate of interest to be charged on any loan given shall not exceed 7.5% above the highest rate of interest offered on deposits by Nidhi and shall be calculated on reducing balance method
- A member shall not be eligible for any further loan if he has borrowed any earlier loan from the Nidhi and has defaulted in repayment of such loan.
- Nidhi Company may open branches if it has earned net profits after tax continuously during the preceding 3 financial years.
- It may open up to 3 branches within the district.
- If a Nidhi proposes to open more than 3 branches within the district or any branch outside the district, it shall obtain the prior permission of the Regional Director (RD) and an intimation is to be given to the Registrar about the opening of every branch within 30 days of such opening.